Dominguez paints rosy path on back of 6.8% growth

The 6.8-percent growth experienced in the first quarter this year puts the Philippines on track to sharply reduce poverty over the next four years, the country’s top economic managers said Friday.

“At this growth rate, and with strong investment inflows contributing to more inclusive growth, the government hopes to bring down the poverty rate from 21.6 percent in 2015 to only 14 percent by 2022,” said Finance Secretary Carlos Dominguez, during the pre-State of the Nation Address Forum of the Cabinet’s Economic Development Cluster at the Philippine International Convention Center.

“This is the most important number we all hope to achieve. All development efforts will be meaningless if they do not translate into liberating our people from the curse of poverty,” he said.

Dominguez said the enactment of the first package of the comprehensive tax reform program known as TRAIN pushed the tax effort for 13.4 percent of gross domestic product to 14.3 percent.

This was the highest first-quarter tax effort the Philippines has achieved in the last 25 years, he said.
From January to May, revenue collections grew by 19 percent over the same period last year, with the Bureau of Internal Revenue improving its collection by 15.5 percent and the Bureau of Customs increasing its collection by 31.2 percent over the same period in 2017.

Up to 30 percent of incremental revenues from TRAIN will go to social services to improve public health, upgrade the educational system and provide cash assistance to the poorest households, while the remaining 70 percent will help fund infrastructure investments.

Dominguez said the succeeding tax reform packages, which would modernize investment incentives and lower corporate income tax rates, would empower consumers; produce conditions more conducive to job-creating investments, especially in the provinces; and ensure sufficient revenues to fund infrastructure modernization and expanded social services.

Expenditures posted their fastest rate of expansion since the beginning of the Duterte administration. With continued growth, spending from January to May was 25 percent higher than the same period last year.

Public spending for infrastructure rose to 5.4 percent of GDP in 2017—slightly above the regional average. This is more than twice the share of GDP invested in infrastructure over the last three decades, Dominguez said.

In the first five months of 2018, national government spending on infrastructure reached P281 billion, representing an increase of 42 percent over the same period last year. These numbers are on top of private sector construction and public sector projects financed through Public-Private Partnerships.

The government expects infrastructure spending to reach 6.1 percent of GDP this year. By 2022, the share of GDP going to infrastructure investments will rise to 7.3 percent.

Thirty-five of the 75 strategic infrastructure projects under the “Build, Build, Build” program have passed all the required approvals and are ready to begin construction anytime soon.

Dominguez said this aggressive spending will close the infrastructure gap with the Philippines’ neighboring economies, attract industrial investments, stimulate domestic economic activity, ensure that every community and every island participates in the mainstream of national wealth creation, and enable the country to take full advantage of regional economic integration within the framework of the Association of Southeast Asian Nations.

The agriculture and fisheries sector registered a 4 percent gross value added growth in 2017, reversing the 1.2-percent decline in 2016. In the first quarter of 2018, agriculture grew by 1.47 percent, with rice production rising by 9.4 percent to about 1.65 million metric tons (MT) last year.
Debt-to-GDP ratio held steady at 42.1 percent in 2017, which was the same rate as in 2016.

Dominguez said the government would continue to prudently manage its obligations as he expressed confidence that the rapid expansion of the domestic economy would enable a further decrease in government debt to 39 percent in 2022.

“Given the rapid expansion of our GDP, we will certainly outgrow our debt,” Dominguez said. “Those who raise the specter of a debt crisis arising from our use of official development assistance [ODA] to finance our infrastructure program are not reading the numbers well enough.”

Foreign direct investment inflows reached a record $10 billion last year, up by 21.5 percent from the previous year and almost double the rate in 2015. For the first quarter of 2018, FDIs totaled $2.2 billion in net inflows, an increase of 43.5 percent compared to the same period last year.

The Department of Trade and Industry, meanwhile, has kept up its efforts to put the country in the top 20 percent in the ease of doing business rankings.

“With all our efforts at simplifying processing, speeding up approvals for startups, and reducing red tape, this should be an achievable goal,” Dominguez said.

As of April this year, the Philippines’ unemployment rate dropped to 5.5 percent, down by 0.2 percent from the same period last year with 625,000 jobs created. Of this number, 605,000 Filipinos were employed in manufacturing and construction.

Total merchandise exports reached $62.87 billion in 2017, which represents a 9.53-percent growth over 2016.

Standard & Poor’s raised the country’s credit rating outlook from BBB stable to BBB positive, an upgrade which recognizes that the Duterte administration’s policy making settings support a track record of more sustainable public finances and balanced growth over the next 24 months.

Socioeconomic Planning Secretary Ernesto Pernia, meanwhile, said the government’s massive infrastructure program “Build, Build, Build” should contribute to economic growth in the succeeding quarters and years.

The government expects to spend as much as 7.3 percent of GDP on public infrastructure by 2022. The government envisions the completion of 32 of 75 flagship projects by end-2022, while making sure that the 4,909 other projects in the provinces and towns throughout the country will have broken ground by then.

Pernia said that while the inflation rate for the first half of the year went slightly off target at 4.3 percent due to the rise in prices of rice, fuel, and fish, this would be temporary as the government transitions towards fully implementing important public policy reforms.

Pernia said unemployment rate from the April round this year was down to 5.5 percent versus the year ago’s 5.7 percent, the lowest recorded unemployment rate for all the April rounds of the Labor Force Survey in the past decade. This put the unemployment rate in the first half of 2018 at 5.4 percent, continuing its downward trend over the years.

“Rapid economic growth has also translated to significant gains with 1.52-million additional employment generated in the first half of the year, well on track to achieve our target of 900,000 to 1.1- million employment generation in 2018,” he said.

Pernia said the government has exceeded its target of reducing underemployment rate in areas outside the National Capital Region, which was down to 17.1 percent in 2017.

“Moreover, emerging numbers tell us that we remain on target this year—underemployment rate in areas outside the NCR was at 18.8 percent in the first half of 2018. This is consistent with our goal of spreading growth to the regions,” he said.

On education, Pernia said the government was expecting a steady decline in elementary and secondary students dropping out of school. Students reaching the final year of elementary and high school increased to 94.2 percent and 84.6 percent, respectively, in school year 2016-2017 as opposed to 87.5 percent recorded in school year 2015-2016.

Lastly, Pernia said the Philippines moved a notch in the 2017 Global Innovation Index Report. The Philippines is now ranked 73rd out of 127 economies covered by that report, branding the country as one of the new Asian Tigers and leaders in ICT service exports in Southeast Asia.

“The PDP [Philippine Development Plan] 2017-2022 promises to lay the foundation for attaining the country’s long-term vision while addressing short-term and medium-term needs. The strategies outlined in the Plan can only be effective if implemented with important reforms, many of which already started groundwork last year,” Pernia said.

Pernia said 2018 was an important transition period, as full implementation of many of the government’s planned programs and proposed socioeconomic policies next year was expected.
“While many challenges and risks lie ahead, I am confident that we will reach our macroeconomic targets and further the national development agenda. The government’s Economic Development Cluster remains committed to its mandate of ensuring stable, inclusive, and most importantly, sustainable growth,” Pernia said.